Airport financing hits the headlines

[Melburnian1]

'The Australian' in its business section data room on Thursday 16 July 2020, during coronavirus, has this to say:

Major airport sends distress flare to insolvency expert as COVID-19 bites

At least one of Australia’s largest airports is believed to be calling in the insolvency experts to guide it through the turbulent COVID-19 conditions, with one of the most high-profile names in the industry, McGrath Nicol, said to be involved.

Sources say McGrath has a role working for either Sydney Airport, which is listed, or the Melbourne Airport.

However, Sydney Airport and McGrath Nicol did not comment, while Melbourne Airport did not return a call to DataRoom.

Both airports are well capitalised, and it is thought that the role does not involve any sort of potential insolvency but rather one offering assistance in negotiating with lenders.
This is as the return of large air traffic volume looks increasingly slim in the short term with a second major COVID-19 community outbreak in Victoria and also signs of the virus in southwest Sydney.

McGrath Nicol is also likely to be offering advice on how to handle the collapse of Virgin Australia, which is soon to be bought by private equity firm Bain Capital. At least one of the airports is an unsecured creditor.

--------------------------------

My guess is that the article is referring to Melbourne Airport as Sydney Airport is publicly listed and more likely to be transparent.

At present each day the number of domestic flights from MEL is about 12 (total of all operators),, although Australian airports that play host to international flights make far more money from the latter than when we fly domestically.

While a very limited number of international flights remain, no passengers are being conveyed into MEL due to concerns about virus case numbers. Outbound flights are not hit by this restriction.

Non-aeronautical revenue (retail rents, car parking and other) has become increasingly important but it too has dramatically reduced.

Fixed costs are high. QFd sold its domestic terminal back to MEL airport a small number of years ago IIRC, so now MEL (and other airports) have a situation where QF had declined to pay rent for some spaces, or deferred it. Not sure if this is continuing given that some lounges reopened.

 

[Melburnian1]

Further to the earlier 'The Oz' article about a major airport, this has appeared tonight (16 July 2020):

'Melbourne Airport has emerged as the airport that has been seeking advice from insolvency experts McGrathNicol to handle the impact of COVID-19 disruptions.
It comes after DataRoom reported on Thursday that the insolvency firm was working with either Sydney or Melbourne airport.

Melbourne Airport is owned by AMP Capital, IFM, Deutsche, The Future Fund and Morrison & Co and is considered to have a very conservative capital structure with enough reserves to withstand another 12 months of COVID-19-related challenges, say sources.

An airport spokesperson said McGrathNicol provided the airport with discrete advice on certain issues from time to time, but it was not related to the solvency of the airport or its operations.

Airports have been seeking assistance in recent months on negotiating with lenders, as the chances of a return of large air traffic volumes look increasingly slim in the short term, especially with a second major COVID-19 outbreak in Victoria and signs of the virus in southwest Sydney...'

 

[Seat0B]

This is bad news, but I suppose it really can't be unexpected given the massive fall in business that airports are now experiencing. The dominoes begin to fall.

 

[Melburnian1]

This is bad news, but I suppose it really can't be unexpected given the massive fall in business that airports are now experiencing. The dominoes begin to fall.

If there's any silver lining, larger airports are not 'zombie businesses' that once JobKeeper eventually ends will fail and end up with an administrator or liquidator, or just 'disappear.'

I wonder about local government owned airfields that must be incurring losses. Do ratepayers have to subsidise?

 

[Seat0B]

If there's any silver lining, larger airports are not 'zombie businesses' that once JobKeeper eventually ends will fail and end up with an administrator or liquidator, or just 'disappear.'

I wonder about local government owned airfields that must be incurring losses. Do ratepayers have to subsidise?

Presumably. I know at least some local govt owned airfields were already struggling with costs of maintaining nav aids etc, but these were more the GA airfields than the RPT. I'm sure someone on here knows more about this than I do.

 

[love_the_life]

Canberra Airport is to be closed on Saturdays effective from 22 August in an attempt to save money according to reports in the CT.

A number of staff members will also lose their jobs, The Canberra Times understands, and the airport closure could be extended to Tuesdays, or other days throughout the week.

Chief executive Stephen Byron has called for a national strategy to assist the aviation industry which was ground to a halt when the pandemic hit Australia in March.

 

[Melburnian1]

Three months ago, Sydney Airport said it didn't need to raise equity.

The Melbourne lockdown/curfew plus further border closures (NSW residents can't go to Queensland) has changed that.

On Tuesday 11 August, 'The Oz' is reporting that Sydney Airport is raising $2 billion through a 'book build' with a floor (lowest) price per share of $4.56 - available only to institutional shareholders. They will receive 1 new share for every 5.15 shares held as at 14 August 2020.

Usually these offers have a date in the past when one qualified: seems unusual to have a date that is this Friday for deciding who has the entitlement.

This compares to the current price of $5.39 a share as of 1600 hours last night.

The raising came as Sydney Airport announced an after-tax interim loss of $53.6 million.

It tells us the airport needs more cash! Yestersday domestic flights were roughly 45, but many were just to NSW rural destinations and therefore QF Q400s or ZL SAAB 340Bs. Hardly any SYD-BNE or SYD-Mel flights, the two most popular routes in normal times, are operating due to border closures.

There seem to be about eight outbound international flighst most days, of which none are QF or VA. Severe daily restrictions on inbound passenger numbers form overseas per aircraft and per day remain.

As far as I can see, this capital raising offer is not open to retail shareholders, but that may become clearer at 1030 hours.

Commentators like Terry McCrann and John Durie regard these sorts of capital raisings as bad because they 'dilute' existing shareholders. (I am not one).

'Further details' are to come. The information to the ASX says there is a webcast at 1030 hours this morning: you can register to see it if interested (just type in code 'SYD' to Google and ask for an 'ASX quote' and the annoincements should be searchable).

 

[jakeseven7]

I wouldn't wish the pain of insolvency and collapse on anyone or any business... but if I had to prioritise, would be great if PER could go the way of the DODO, at least to the extent the entire exec team is removed.

 

[Melburnian1]

I wouldn't wish the pain of insolvency and collapse on anyone or any business... but if I had to prioritise, would be great if PER could go the way of the DODO, at least to the extent the entire exec team is removed.

The SYD financing gives us a clue as to the financial health of all the others: not good.

Maybe BNE is a little less affected as at least it has quite a few six day a week flights to Queensland rural cities such as CNS, but it still has the problem of hardly any international flights where it makes its money and same on 'golden triangle.'

 

[woodborer]

I wouldn't wish the pain of insolvency and collapse on anyone or any business... but if I had to prioritise, would be great if PER could go the way of the DODO, at least to the extent the entire exec team is removed.

Perth is one of the busier airports around at the moment.